The Great Depression is a major worldwide economic depression that occurred mostly during the 1930s, beginning in the United States. Great Depression Time varies across countries; in most countries began in 1929 and lasted until the late 1930s. It was the longest, deepest, and most widespread depression of the 20th century. In the 21st century, the Great Depression is generally used as an example of how far the world's economy can decline.
The Great Depression began in the United States after the collapse of a large share price that began around September 4, 1929, and became news worldwide with the stock market crash on October 29, 1929 (known as Black Tuesday). Between 1929 and 1932, global gross domestic product (GDP) fell about 15%. For comparison, world GDP fell less than 1% from 2008 to 2009 during the Great Recession. Some economies began to recover in the mid-1930s. However, in many countries, the negative effects of the Great Depression lasted until the beginning of World War II.
The Great Depression has had a devastating impact on rich and poor countries. Personal income, tax revenues, profits and prices fell, while international trade fell more than 50%. Unemployment in the US rose to 25% and in some countries rose as high as 33%.
Cities worldwide are hit hard, especially those that rely on heavy industry. Practical construction is discontinued in many countries. Agricultural and rural communities suffer because crop prices are down about 60%. Faced with declining demand with alternative sources of employment, areas that depend on primary sector industries such as mining and logging suffer most.
Video Great Depression
Start
Economic historians usually attribute the beginning of the Great Depression to the sudden collapse of US stock market prices on October 29, 1929, known as Black Tuesday. However, some disagree with this conclusion and see the stock fall as a symptom, not the cause, of the Great Depression.
Even after Wall Street Crash of 1929, optimism persisted for some time. John D. Rockefeller said, "These are the days when many people are discouraged, and in the 93 years of my life depression has come and gone, prosperity always returns and will return." The stock market turned up in early 1930, returning to its starting level of 1929 in April. This is still almost 30% below the peak of September 1929.
Together, governments and businesses spend more in the first half of 1930 than in the same period of the previous year. On the other hand, consumers, many of whom suffered severe losses in the stock market the previous year, cut their spending by 10%. In addition, beginning in the mid-1930s, severe drought damaged the heart of US agriculture.
By mid 1930, interest rates fell to low levels, but the expected deflation and reluctance of people to borrow meant consumer spending and investment depressed. In May 1930, auto sales declined below the 1928 level. Prices generally began to decline, although wages remained steady in 1930. Then the deflationary spiral began in 1931. Farmers face worse views; decline in crop prices and drought Great Plains cripples their economic outlook. At its peak, the Great Depression saw nearly 10% of all Great Plains farms change hands despite federal assistance.
The decline in the US economy is a factor that degrades most other countries initially; then, the internal weakness or strength in each country makes the condition worse or better. Reckless attempts to shore up individual individual economies through protectionist policies, such as the 1930 Smoot-Hawley Tariff Act and retaliation rates in other countries, exacerbate the fall in global trade. By 1933, the economic downturn had pushed world trade to a third of its level just four years earlier.
Economic indicators
Changes in economic indicators 1929-32
Maps Great Depression
Cause
The two classic competing theories of the Great Depression are the Keynesian (demand-driven) and monetarist explanations. There are also various heterodox theories that discourage or deny the explanations of the Keynesians and monetarists. The consensus among demand-driven theories is the massive loss of trust that causes a sudden decline in consumption and investment spending. After panic and deflation occur, many people believe that they can avoid further losses by staying away from markets. Holding money becomes profitable because prices fall lower and the amount of money given buys more goods, exacerbating the decline in demand. Monetaris believes that the Great Depression began as a normal recession, but the shrinking money supply greatly aggravated the economic situation, causing the recession to descend into the Great Depression.
Economists and economic historians are almost evenly divided over whether the traditional monetary explanation that monetary power is the main cause of the Great Depression is true, or the traditional Keynesian explanation that the fall of autonomous spending, especially investment, is the main explanation for the onset of the Great Depression. Today's controversy is less important as there is major support for the theory of debt deflation and a hypothesis of constructive expectations on monetary explanations Milton Friedman and Anna Schwartz add non-monetary explanations.
There is a consensus that the Federal Reserve System should cut the process of monetary deflation and banking collapse. If they do this, the economic downturn will be much worse and much shorter.
Primary explanation
Keynesian
The British economist John Maynard Keynes argues in the General Theory of Employment, Interest and Money that lower aggregate expenditure in the economy contributes to a substantial decline in income and work that is well below average. In such situations, the economy reaches equilibrium at low levels of economic activity and high unemployment.
The basic idea Keynes simple: to keep people working, the government must have a deficit when the economy slows down, because the private sector will not invest enough to keep production at a normal level and bring the economy out of recession. Keynesian economists are asking the government during times of economic crisis to take a leeway by increasing government spending and/or tax cuts.
As Depression continued, Franklin D. Roosevelt tried public works, agricultural subsidies, and other tools to restart the US economy, but never gave up trying to balance the budget. According to Keynesians, this improved the economy, but Roosevelt never spent enough money to bring the economy out of recession until the start of World War II.
Monetaris
Monetaris follows the explanations given by Milton Friedman and Anna J. Schwartz. They argue that the Great Depression was caused by a banking crisis that caused a third of all banks to disappear, a reduction in bank shareholder wealth and more important a monetary contraction of 35%. This led to a 33% price drop (deflation). By not lowering the interest rate, by not raising the monetary base and by not injecting liquidity into the banking system to prevent it from collapsing the Federal Reserve passively witnessed the transformation of the normal recession into the Great Depression. Friedman argues that a downward shift in the economy, beginning with the fall of the stock market, will become a normal recession if the Federal Reserve has taken aggressive action.
The Federal Reserve allowed several failures of large public banks - mainly from the New York Bank of United States - which resulted in panic and widespread in local banks, and the Federal Reserve sat silent when the banks collapsed. He claims that, if the Fed has provided emergency loans to these major banks, or simply bought government bonds on the open market to provide liquidity and increase the amount of money after major banks fell, all other banks will not fall. after the big ones do it, and the money supply will not go down so far and so fast.
With far less money, businesses can not get new loans and can not even get their old loans updated, forcing many people to stop investing. This interpretation blames the Federal Reserve for not acting, especially the New York Branch.
One of the reasons why the Federal Reserve does not act to limit the decline in money supply is the gold standard. At that time, the amount of credits that the Federal Reserve may incur is limited by the Federal Reserve Act, which requires 40% of gold support from the published Federal Reserve Notes. By the late 1920s, the Federal Reserve had almost reached the allowable credit limit that could be backed by its gold. This credit is in the form of a Federal Reserve request note. The "gold promise" is not as good as "gold in hand", especially when they only have enough gold to cover 40% of the outstanding Federal Reserve Notes. During the panic of the bank, a portion of the note's request was exchanged for Federal Reserve gold. Because the Federal Reserve has reached the limit on the allowable credit, any reduction of gold in its safe must be accompanied by a larger credit decline. On April 5, 1933, President Roosevelt signed the 6102 Executive Order to make private ownership of gold, coins and gold bullion certificates, easing pressure on the Federal Reserve gold.
General position
From the viewpoint of the current flow of mainstream economic thinking, governments should strive to maintain an interconnected macroeconomic and economic aggregate supply and/or aggregate demand on a stable growth path. When threatened by forecasts the central bank depression must pour liquidity into the banking system and the government should cut taxes and accelerate spending to keep nominal money stock and total nominal demand from collapse. At the beginning of the Great Depression most economists believe in Say's law and market forces that balance themselves and fail to explain the severity of the Depression. Outright liquidationism left-it is a position that is primarily held by the Austrian School. The position of liquidation is that depression is a good medicine. The idea is that the benefits of depression are to liquidate failed investments and businesses that have been made obsolete by technological developments to release production factors (capital and labor) from unproductive use so that it can be transferred in other sectors of technology. dynamic economy. They argue that even if the adaptation of the economy takes a mass bankruptcy, then be it. An increasingly common view among economic historians is that the compliance of some Federal Reserve policy makers to liquidationist theses led to catastrophic consequences. Regarding President Hoover's policies, economists such as Barry Eichengreen and J. Bradford DeLong point out that President Hoover sought to keep the federal budget balanced until 1932, when he lost confidence in Finance Minister Andrew Mellon and succeeded him. Despite the liquidationist expectations, most of the capital stocks were not rehired but disappeared during the first years of the Great Depression. According to a study by Olivier Blanchard and Lawrence Summers, the recession caused a decline in net capital accumulation to pre-1924 levels in 1933. Milton Friedman called left-it-own liquidation "dangerous nonsense". He writes:
Modern non-monetary explanation
The monetary explanation has two weaknesses. First, it can not explain why money demand falls faster than supply during the initial decline in 1930-31. Second, it can not explain why in March 1933 there was a recovery even though short-term interest rates remained close to zero and Money supply was still down. These questions are addressed by a modern explanation built on the monetary explanations of Milton Friedman and Anna Schwartz but add non-monetary explanations.
Debt Deflation
Irving Fisher argues that the main factors that led to the Great Depression were the vicious cycle of deflation and increased excess debt. He outlines the nine factors that interact with each other under conditions of debt and deflation to create a boom to bust mechanism. The chain of events took place as follows:
- Liquidation of debt and sale of distress
- Contraction of money supply due to bank loan settled
- Decrease in asset price level
- A larger drop in net business wealth, triggering bankruptcy
- Profit drop
- Decrease in output, in trade and in work
- Pessimism and loss of confidence
- Hoard money
- Decrease in nominal interest rate and deflationary increase adjusted to the interest rate
During the Crash of 1929 before the Great Depression, the margin requirement was only 10%. Brokerage firms, in other words, will lend $ 9 for every $ 1 that investors have deposited. When the market falls, the broker asks for this loan, which can not be repaid. Banks begin to fail because debtors fail to pay off debts and depositors seek to withdraw their deposits en masse , prompting many banks to run. Federal Reserve government guarantees and banking regulations to prevent panic are ineffective or unused. Bank failures lead to the loss of billions of dollars in assets.
Extraordinary debt becomes heavier, as prices and revenues fall by 20-50% but debt remains at the same dollar amount. After the 1929 panic, and during the first 10 months of 1930, 744 US banks failed. (Overall, 9,000 banks failed during the 1930s). In April 1933, about $ 7 billion of deposits had been frozen in unsuccessful or unlicensed banks after the March Bank Holiday. Bank failures intensify as desperate bankers call for loans that borrowers do not have the time or money to pay. With future earnings that look bad, capital investment and construction slow down or actually stop. In the face of bad debts and worsening future prospects, surviving banks are becoming more conservative in their lending. The banks build up their capital reserves and make fewer loans, which increases deflationary pressures. Satanic cycle develops and spiral decreases accelerated.
Debt liquidation can not keep up with the falling prices. The mass effect of a stampede to liquidate increases the value of each dollar owed, relative to the asset's asset loss. Individual efforts to reduce their debt burden effectively improve it. Paradoxically, the more debtors are paid, the more debt they have. This self-inflicting process turned the 1930 recession into a great depression in 1933.
Fisher's debt deflation theory initially has no mainstream effect because the arguments that debt-deflation is nothing more than a redistribution from one group (debtor) to another (creditor). Pure redistributions should not have significant macroeconomic effects.
Based on monetary hypotheses from Milton Friedman and Anna Schwartz as well as the debt deflation hypothesis from Irving Fisher, Ben Bernanke developed an alternative way in which the financial crisis affected output. He built Fisher's argument that the dramatic decline in the price level and nominal income led to an increase in real debt burden which in turn led to the debtor's inability and consequently led to a decline in aggregate demand, a further decline in the price level then generating a spiral of debt deflation. According to Bernanke, a small drop in the price level simply reallocates wealth from debtors to creditors without damaging the economy. But when deflation is a severe falling asset price along with the debtor's bankruptcy causes a decrease in the face value of the asset on the bank's balance sheet. Banks will react by tightening their credit conditions, which in turn lead to a credit crunch that is detrimental to the economy. The credit crunch lowers investment and consumption and results in a decrease in aggregate demand that also contributes to the deflationary spiral.
Expectations of hypothesis
As the mainstream of the economy shifts to a new neoclassical synthesis, hope is a central element of the macroeconomic model. According to Peter Temin, Barry Wigmore, Gauti B. Eggertsson and Christina Romer, the key to recovery and ending the Great Depression was generated by the successful management of public expectations. This thesis is based on the observation that after years of severe deflation and recession, important economic indicators turned positive in March 1933 when Franklin D. Roosevelt took office. Consumer prices changed from deflation to mild inflation, industrial production hit a low in March 1933, and investment doubled in 1933 with a turnaround in March 1933. There was no monetary power to explain it. Money supply is still down and short-term interest rates remain close to zero. Before March 1933 people were expecting further deflation and recession so even zero interest rates did not stimulate investment. But when Roosevelt declared a major regime change, people began to expect inflation and economic expansion. With these positive expectations, zero interest rates begin to stimulate investment as expected. Roosevelt's fiscal and monetary policy reforms helped make the policy objective credible. Higher future earnings expectations and higher future inflation boost demand and investment. This analysis shows that the abolition of standard gold policy dogmas, balanced budgets in times of crisis and small governments leads endogenously to a major shift in expectations that account for about 70-80 percent of output and price recovery from 1933. until 1937. If regime change does not occur and Hoover's policy continues, the economy will continue to fall freely in 1933, and output will be 30% lower in 1937 than in 1933.
The 1937-1938 recession, which slowed the economic recovery of the Great Depression, was explained by the concern of the population that a moderate tightening of monetary and fiscal policy in 1937 would be the first step to a policy recovery before March 1933. the regime.
Heterodox theory
Austrian School
Two prominent theorists at the Austrian School of the Great Depression included Austrian economist Friedrich Hayek and American economist Murray Rothbard, who wrote the Great Depression of America (1963). In their view, like a monetarist, the Federal Reserve (created in 1913) bore many faults; Unlike Monetaris, however, they argue that the main cause of the Depression was the expansion of the money supply in the 1920s, leading to an unsustainable credit boom.
In view of Austria, money supply inflation led to an unsustainable boom in both asset prices (stocks and bonds) and capital goods. Therefore, by the time the Federal Reserve tightened in 1928, it was too late to prevent economic contraction. In February 1929, Hayek published a paper that predicted the actions of the Federal Reserve would cause the crisis to begin in the stock and credit markets.
According to Rothbard, government support for failed ventures and attempts to keep wages above their market value actually lengthened the Depression. Unlike Rothbard, after 1970 Hayek believed that the Federal Reserve had further contributed to the problems of the Depression by allowing the money supply to shrink during the early years of the Depression. However, during the Depression (in 1932 and 1934) Hayek criticized the Federal Reserve and the Bank of England for not taking a contractional stance.
Hans Sennholz, another prominent Austrian economist, argues that most of the boom and bust that hit the American economy, as in 1819-20, 1839-43, 1857-60, 1873-78, 1893-97, and 1920-21, were produced by the government created an explosion through easy money and credit, which was soon followed by an inevitable bust. Spectacular crash of 1929 followed five years of reckless credit expansion by the Federal Reserve System under the Coolidge Government. The adoption of the Sixteenth Amendment, the passing of the Federal Reserve Act, rising government deficits, the passing of the Hawley-Smoot Tariff Act and the Revenue Act of 1932, exacerbate and prolong the crisis.
Ludwig von Mises wrote in the 1930s: "Credit expansion can not increase the supply of real goods.This only results in a rearrangement This diverts capital investment from subjects determined by the state of economic wealth and market conditions, leading to production for the pursuit of a path that will not follow except the economy to gain an increase in material goods, consequently, the rise has no solid foundation.This is not real prosperity.This is an illusionary prosperity.It does not evolve from the improvement of the wealth economy, that is, the accumulated savings available for investment productive, on the contrary, it arises because credit expansion creates the illusion of such an increase, sooner or later, it must be clear that this economic situation is built on the sand. "
Marxis
Karl Marx sees recession and depression as unavoidable under free market capitalism because there are no restrictions on the accumulation of capital apart from the market itself. In the Marxist view, capitalism tends to create an unbalanced accumulation of wealth, leading to an excessive accumulation of capital that must lead to crisis. This very sharp cliff is a regular feature of the boom and bust patterns of what the Marxists term "chaotic" of capitalist development. It is the principle of many Marxist groups that such a crisis is inevitable and will worsen until the inherent contradictions in the mismatch between the mode of production and the development of productive forces reach the point of final failure. At what point, the period of crisis pushed the class conflict intensively and forced the change of society.
Inequality
Two economists of the 1920s, Waddill Catchings and William Trufant Foster popularized theories that influenced many policymakers, including Herbert Hoover, Henry A. Wallace, Paul Douglas, and Marriner Eccles. It holds the economy generated more than consumed, because consumers do not have enough income. Thus the unequal distribution of wealth throughout the 1920s caused the Great Depression.
According to this view, the root cause of the Great Depression is global over-investment in heavy industry capacity compared to wages and revenues from independent businesses, such as farms. The proposed solution is for the government to pump money into the pockets of consumers. That is, it has to redistribute purchasing power, maintaining an industrial base, and inflating prices and wages to force as much inflation increases in purchasing power to consumer spending. The economy is too big, and new factories are not needed. Foster and Catchings recommends the federal and state governments to begin a major construction project, a program that Hoover and Roosevelt follow.
Productivity shock
It can not be overemphasized that the trends [productivity, output and work] we describe are long-term trends and really proven before 1929. These trends are now the result of this depression, nor the result of the World War. Conversely, the current depression is the collapse resulting from this long-term trend.
The first three decades of the 20th century saw a surge in economic output with electrification, mass production and motorized agricultural machinery, and because of the rapid growth in productivity there was a lot of excess production capacity and the workweek was reduced.
The dramatic increase in productivity of major US industries and productivity effects on outputs, wages and working weeks was discussed by Spurgeon Bell in his book Productivity, Wages and National Income (1940).
The worsening of global depression
The gold standard is the main transmission mechanism of the Great Depression. Even countries that do not face bank failures and monetary contractions first-hand are forced to join deflationary policies because higher interest rates in deflationary countries lead to gold outflows in countries with lower interest rates. Under the price-standard price flow mechanism of gold prices, countries that lose gold but still want to keep the gold standard should let their money supply decline and the level of domestic prices decline (deflation).
There is also a consensus that protectionist policies such as the Smoot-Hawley Tariff Act help exacerbate depression.
Gold Standard
Several economic studies have shown that such a decline is spread across the globe by the stiffness of the Gold Standard, it suspends the gold convertibility (or devalues ​​the currency in gold terms) that do the most to make possible recovery.
Every major currency leaves the gold standard during the Great Depression. England was the first to do so. Faced with speculative attacks against the pound and depletion of gold reserves, in September 1931 the Bank of England ceased swapping the pound notes for gold and pound floating on the foreign exchange market.
Britain, Japan and the Scandinavian countries abandoned the gold standard in 1931. Other countries, such as Italy and the US, continued to use the gold standard in 1932 or 1933, while some countries in the so-called "golden block", led by France and including Poland, Belgium and Switzerland, remained at the standard until 1935-36.
According to further analysis, the prevalence in which a country leaves the gold standard can be reliably predicted its economic recovery. For example, Great Britain and Scandinavia, which abandoned the gold standard in 1931, recovered much earlier than France and Belgium, which remained longer in gold. Countries like China, which have a silver standard, almost avoided depression completely. The association between leaving the gold standard as a strong predictor of the country's severity from its depression and the length of its recovery has proven to be consistent for dozens of countries, including developing nations. This partly explains why the experience and length of depression differ between national economies.
International trade breakdown
Many economists argue that a sharp decline in international trade after 1930 helps exacerbate depression, especially for countries that are significantly dependent on foreign trade. In a 1995 survey of American economic historians, two-thirds agreed that the Smoot-Hawley Tariff Act at least worsened the Great Depression. Most historians and economists partially blame the American Smoot-Hawley Tariff Act (enacted June 17, 1930) for exacerbating depression by seriously reducing international trade and causing rates of retaliation in other countries. Although foreign trade is a small part of overall economic activity in the US and is concentrated in some businesses such as agriculture, it is a much bigger factor in many other countries. The average of ad valorem of the 1921-25 import duty rate was 25.9% but below the new rate jumped to 50% during 1931-35. In dollars, US exports declined over the next four (4) years from about $ 5.2 billion in 1929 to $ 1.7 billion in 1933; so, not only is the physical volume of exports down, but also the price drops by about 1/3 as it is written. Hardest hit is agricultural commodities such as wheat, cotton, tobacco, and wood.
Governments around the world are taking steps to spend less on foreign goods such as: "impose tariffs, import quotas, and exchange controls". These restrictions form a lot of tension between the trading nations, leading to major reductions during depression. Not all countries apply the same measure of protectionism. Some countries raise tariffs drastically and impose strict restrictions on foreign exchange transactions, while other countries condense "trade and exchange restrictions only slightly":
- "Countries that remain at the gold standard, keeping the currency fixed, are more likely to limit foreign trade." These countries "use protectionist policies to strengthen the balance of payments and limit the loss of gold." They hope that this limitation and depletion will withstand the economic downturn.
- Countries that abandoned the gold standard, letting their currency depreciate which causes their balance of payments to strengthen. It also liberates monetary policy so that central banks can lower interest rates and act as lenders of last resort. They have the best policy instruments to fight the Depression and do not need protectionism.
- "The length and depth of a country's economic downturn and the timing and strength of its recovery are related to how long it lasts on the gold standard.The countries that leave the relatively early gold standard have a relatively mild recession and early recovery. remaining at the gold standard is experiencing a prolonged deterioration. "
Influence of rates
The consensus view among economists and economic historians is that part of the Smoot-Hawley Tariff worsens the Great Depression, despite disagreements about how much. In popular view, Smoot-Hawley Tariffs are a major cause of depression. However, many economists argue that tariff measures do not exacerbate depression.
The German banking crisis of 1931 and the British crisis
The financial crisis escalated out of control in mid-1931, beginning with the collapse of Credit Anstalt in Vienna in May. This puts great pressure on Germany, which is already in political turmoil. With the increasing violence of the Nazi and communist movements, as well as investor anxiety on the harsh government's financial policies. Investors withdraw their short-term money from Germany, as confidence falls down. Reichsbank lost 150 million marks in the first week of June, 540 million in the second, and 150 million in two days, June 19-20. Collapse is near. US President Herbert Hoover called for a moratorium on reparation payments. This made Paris angry, which relied on the flow of German payments, but slowed down the crisis and the moratorium, agreed in July 1931. The international conference in London in July did not result in a deal but on August 19 the agreement secretly froze Germany. overseas liabilities for six months. Germany receives emergency funds from private banks in New York and the Bank of International Settlements and the Bank of England. Funding only slows down the process; It is okay. Industrial failures began in Germany, major banks closed in July and a two-day holiday for all German banks was announced. Business failures are more common in July, and spread to Romania and Hungary. The crisis continued to deteriorate in Germany, bringing political turmoil that eventually led to the arrival of Hitler's Nazi regime in January 1933.
The world financial crisis is now beginning to hit the UK; investors around the world are starting to withdraw their gold from London at a rate of Ã,  £ 2½ million per day. Credit of Ã,  £ 25 million from Bank of France and Federal Reserve Bank of New York and fiduciary issues of £ 15 million slowed, but did not reverse the UK crisis. The financial crisis now caused a major political crisis in Britain in August 1931. With an increasing deficit, bankers demanded a balanced budget; the cabinet is divided from the government of Prime Minister Ramsay MacDonald's Labor; proposed to raise taxes, cut spending and most controversially, to cut unemployment benefits by 20%. Attacks on welfare are totally unacceptable to the Labor movement. MacDonald wanted to resign, but King George V insisted he remain and formed a coalition of all the parties "National government." Conservative and Liberal parties joined, along with a small Labor party cadre, but most Labor leaders denounced MacDonald as a traitor to lead a new government. England went from the gold standard, and suffered relatively fewer than other major countries in the Great Depression. In the 1931 British election, the Labor Party was almost destroyed, leaving MacDonald as Prime Minister for a largely Conservative coalition.
Turning and recovery points
In most countries of the world, the recovery of the Great Depression began in 1933. In the US, recovery began in early 1933, but the US did not return to GNP 1929 for more than a decade and still had an unemployment rate of around 15% in 1940, high 25% in 1933.
There is no consensus among economists about the motive force for continued US economic expansion through much of Roosevelt's year (and an interrupted 1937 recession). A common view among most economists is that Roosevelt's New Deal policy causes or accelerates recovery, although its policy has never been aggressive enough to bring the economy completely out of recession. Some economists have also drawn attention to the positive effects of reflation expectations and the rise in nominal interest rates that Roosevelt's words and actions inflicted. It was a setback from the same reflationary policies that led to the cessation of the recession that began in late 1937. One of the contributing policies that reversed the Reflation was the Banking Act of 1935, which effectively increased reserve requirements, causing monetary contraction that helped foil it. recovery. GDP returned to an upward trend in 1938.
According to Christina Romer, the growth in money supply caused by large international gold inflows is an important source of US economic recovery, and that the economy shows little signs of self-correction. The inflow of gold is partly due to the devaluation of the US dollar and partly because of the worsening political situation in Europe. In their book Military History of Milton Friedman and Anna J. Schwartz also attributed the recovery to monetary factors, and argued that it was slowed by the Federal Reserve's poor money management. System. Former Federal Reserve Chairman Ben Bernanke agrees that monetary factors play an important role both in the worldwide economic downturn and ultimately recovery. Bernanke also sees a strong role for institutional factors, particularly the rebuilding and restructuring of the financial system, and suggests that the Depression should be examined in an international perspective.
Women's Role and Household Economy
The main role of women is as housewives; without a steady stream of family income, their work becomes more difficult in dealing with food and clothing and medical care. Births fall everywhere, because children are delayed until families can financially support them. The average birth rate for 14 major countries fell 12% from 19.3 births per thousand in 1930, to 17.0 in 1935. In Canada, half of Roman Catholic women oppose Church teaching and use contraception to delay birth.
Among some women in the workforce, layoffs are less common in white-collar jobs and they are usually found in light manufacturing jobs. However, there is widespread demand to limit families to a paid job, so wives may lose their jobs if their husbands are employed. Across the UK, there is a tendency for married women to join the workforce, competing for part-time jobs in particular.
In rural and small towns, women expanded their vegetable garden operations to include as much food production as possible. In the United States, agricultural organizations sponsor programs to teach housewives how to optimize their gardens and to raise poultry for meat and eggs. In American cities, African American female quiltmakers enlarge their activities, promote collaboration, and train neophytes. Blankets are made for practical use of various inexpensive materials and increased social interaction for women and promote friendship and personal fulfillment.
Oral history provides evidence of how housewives in modern industrial cities deal with lack of money and resources. Often they update the strategies their mothers use when they grow up in poor families. Cheap food is used, such as soup, beans, and noodles. They buy the cheapest cuts of meat - sometimes even horse meat - and recycle Sunday roast into sandwiches and soups. They sew and patch clothes, trade with their neighbors for very large items, and are made with colder homes. New furniture and equipment are postponed to better days. Many women also work outdoors, or take dorms, wash clothes for trade or money, and sew for neighbors in return for something they can offer. Extended families use mutual assistance - supplementary meals, backup rooms, repair jobs, cash loans - to help cousins ​​and in-laws.
In Japan, the official government policy is deflation and the opposite of Keynesian spending. As a result, the government launched a national campaign to encourage households to reduce their consumption, focusing on spending by housewives.
In Germany, the government tried to reshape private household consumption under the Four Year Plan of 1936 to achieve German economic independence. The Nazi women's organizations, other propaganda agencies and authorities all seek to shape consumption as economic self-sufficiency is needed to prepare and sustain the coming war. Organizations, propaganda agencies and authorities use slogans that mention traditional values ​​of saving and healthy living. However, this effort is only partially successful in changing the behavior of housewives.
World War II and recovery
A common view among economic historians is that the Great Depression ended with the advent of World War II. Many economists believe that government spending for the war causes or at least speeds recovery from the Great Depression, although some people assume that it does not play a huge role in the recovery. It helps reduce unemployment.
The weapon policy that led to World War II helped stimulate the European economy in 1937-1939. In 1937, unemployment in the UK fell to 1.5 million. The mobilization of labor after the outbreak of war in 1939 put an end to unemployment.
When the United States entered the war in 1941, it finally eliminated the last effects of the Great Depression and brought the US unemployment rate below 10%. In the US, massive war spending doubled the rate of economic growth, either covering the impact of the Depression or essentially ending the Depression. Entrepreneurs ignore the rising national debt and heavy new taxes, redoubling their efforts for greater results to capitalize on generous government contracts.
Effects
The majority of countries are forming aid programs and most are experiencing some kind of political turmoil, pushing them to the right. Many countries in Europe and Latin America are democracies see them overthrown by some form of dictatorship or authoritarian government, the most famous in Germany in 1933. Dominion of Newfoundland voluntarily submit democracy.
Australia
Australia's dependence on agricultural and industrial exports means it is one of the hardest hit countries. Falling demand for exports and commodity prices put great downward pressure on wages. Unemployment hit a record high 29% in 1932, with civil unrest incident becoming commonplace. After 1932, an increase in the price of wool and meat led to a gradual recovery.
Canada
Greatly affected by the global economic downturn and the Dust Bowl, Canadian industrial production fell to just 58% from 1929 levels in 1932, the second lowest rate in the world after the United States, and far behind countries such as Britain, which fell to just 83% level 1929. Total national income fell to 56% from 1929 levels, again worse than any country other than the United States. Unemployment reached 27% at depth of Depression in 1933.
Chile
The League of Nations sealed Chile as the country hardest hit by the Great Depression as 80% of government revenues came from exports of copper and nitrates, whose demand was low. Chile initially felt the impact of the Great Depression in 1930, when GDP fell 14%, mining revenues declined by 27%, and export revenues fell 28%. By 1932, GDP had shrunk to less than half of what happened in 1929, demanding huge losses in unemployment and business failure.
Influenced greatly by the Great Depression, many national leaders promote the development of local industries in an attempt to isolate the economy from future external shocks. After six years of government austerity measures, which succeeded in rebuilding Chile's creditworthiness, Chileans were elected to office during the period 1938-58 consecutive centers and left-of-center governments interested in promoting economic growth by means of government intervention.
Driven in part by the massive earthquake of 1939, Popular Front Administration Pedro Aguirre Cerda created the Corporación de Fomento de la ProducciÃÆ'³n Production Corporation (CORFO) to encourage subsidies and direct investment of ambitious programs of industrialization of import substitution. Consequently, as in other Latin American countries, protectionism becomes an entrenched aspect of the Chilean economy.
China
China is largely unaffected by the Depression, mainly because it is tied to the Silver standard. However, the act of purchasing US silver in 1934 created an intolerable demand on Chinese silver coins, so in the end the silver standard was officially abandoned in 1935 and supported four "legal problems" of China's national banks. The Chinese and British colonies in Hong Kong, who followed him in this case in September 1935, would be the last to abandon the silver standard. In addition, the Nationalist Government also acts vigorously to modernize the legal and correctional system, stabilize prices, pay off debts, reform the banking system and currency, build railroads and roadways, improve public health facilities, make laws against traffic in field of narcotics and improve industrial and agricultural production. On 3 November 1935, the government instituted currency reforms (fapi), immediately stabilizing prices and also increasing revenues for the government.
French
The crisis affected France a little slower than other countries, reaching around 1931. While the 1920s grew at a very strong rate of 4.43% annually, the 1930s rate dropped to just 0.63%.
Depression is relatively mild: unemployment reaches below 5%, production decline at most 20% below output in 1929; there is no banking crisis.
However, depression had a drastic effect on the local economy, and partly explained the unrest of 6 February 1934 and even more the formation of the Popular Front, led by socialist leader SFIO LÃ © Å © on Blum, who won the election in 1936. The nationalist ultra- popularity, although democracy prevailed in World War II.
The relatively high level of French self-sufficiency means much less damage than in countries like Germany.
German
The Great Depression hit Germany hard. The impact of Wall Street Crash forced American banks to end new loans that have funded payments under the Dawes and Youth Plans. The financial crisis escalated out of control and mid-1931, beginning with the fall of Anstalt Credit in Vienna in May. This puts great pressure on Germany, which is already in political turmoil. With the increasing violence of the Nazi and communist movements, as well as investor anxiety on the harsh government's financial policies. Investors withdraw their short-term money from Germany, as confidence falls down. Reichsbank lost 150 million marks in the first week of June, 540 million in the second, and 150 million in two days, June 19-20. Collapse is near. US President Herbert Hoover called for a moratorium on reparation payments. This made Paris angry, which relied on the flow of German payments, but slowed down the crisis and the moratorium, agreed in July 1931. An international conference in London in July did not result in an agreement but on August 19 the deal quietly froze. Germany's foreign obligations for six months. Germany receives emergency funds from private banks in New York and the Bank of International Settlements and the Bank of England. Funding just slows down the process. Industrial failures began in Germany, major banks closed in July and a two-day holiday for all German banks was announced. Business failures became more frequent in July, and spread to Romania and Hungary.
In 1932, 90% of German reparations payments were canceled. (In the 1950s, Germany paid for all the repayment debts that were not answered.) Extensive unemployment reached 25% because every sector was harmed. The government did not increase government spending to deal with the growing crisis in Germany, as they feared that high spending policies could lead to a return of hyperinflation that had affected Germany in 1923. The Weimar Republic of Germany was hit hard by depression, such as the American Loan to help rebuild the German economy now Stop. The unemployment rate reached almost 30% in 1932, strengthening support for the Nazi party (NSDAP) and Communist (KPD), leading to the collapse of the political-Social Democratic Party. Hitler ran for president in 1932, and when he lost to the ruling Hindenburg in elections, it marked a point where the Nazi Party and Communist parties rose in the years following the crash to fully own the majority of the Reichstag after the election. in July 1932.
Hitler followed the policy of autarky economy, creating a network of client countries and economic allies in Central and Latin America. By cutting wages and taking over unions, plus public works expenditures, unemployment fell significantly in 1935. Large-scale military spending played a major role in the recovery.
Greek
The echoes of the Great Depression hit Greece in 1932. The Bank of Greece tried to adopt deflationary policies to prevent a crisis occurring in other countries, but most failed. For a brief period, the drachma is pegged to the US dollar, but this is not sustainable given the large country trade deficit and the only long-term effect of this is the Greek foreign exchange reserves that were almost completely destroyed in 1932. Remittances from abroad dropped sharply and the value drachma began to plummet from 77 drachmas to the dollar in March 1931 to 111 drachmas to the dollar in April 1931. This is very dangerous for Greece as the country relies on imports from Britain, France and the Middle East. for many needs. Greece went gold standard in April, 1932 and announced a moratorium on all interest payments. The country has also adopted protectionist policies such as import quotas, conducted by a number of European countries over that time period.
The protectionist policy coupled with the weak drachma, the strangling imports, allowed the Greek industry to develop during the Great Depression. In 1939 the output of the Greek Industry was 179% from 1928. These industries were mostly "built on sand" as reported by the Bank of Greece, because without massive protection they would not be able to survive. Despite the global depression, Greece managed to suffer relatively little, the average growth rate averaged 3.5% from 1932 to 1939. The dictatorial regime of Ioannis Metaxas took over the Greek government in 1936, and strong economic growth in the years leading up to the war Second World.
Iceland
The prosperity after World War I to Iceland ended with the outbreak of the Great Depression. Depression hit Iceland once the value of exports plummeted. The total value of Iceland exports fell from 74 million kronur in 1929 to 48 million in 1932, and would not rise again to levels before 1930 until after 1939. Government interference in the economy increased: "Imports regulated, trade with foreign currency monopolized by banks state-owned banks, and loan capital is largely distributed by state-administered funds ". Due to the outbreak of the Spanish Civil War, which cut the export of Iceland's salted fish by half, Depression took place in Iceland until the outbreak of World War II (when prices for fish exports soared).
ireland
Frank Barry and Mary E. Daly argue that:
- Ireland is a large agricultural economy, trading almost exclusively with Britain, at the time of the Great Depression. Beef and dairy products consisted mostly of exports, and Ireland fared well compared to many other commodity producers, especially in the early years of depression.
Italy
The Great Depression hit Italy very hard. When the industry barely fails, they are bought by banks with a largely illusory bailout - the assets used to finance most purchases are worthless. This caused the financial crisis to culminate in 1932 and major government intervention. The Institute of Industrial Reconstruction (IRI) was formed in January 1933 and took over the banks' owned companies, suddenly giving Italy the largest state-owned industrial sector in Europe (excluding the Soviet Union). IRI is quite good with its new responsibilities - restructuring, modernization and rationalization as much as possible. This is a significant factor in post-1945 developments. But it took the Italian economy until 1935 to restore the 1930 manufacturing rate - a position that was only 60% better than 1913.
Japanese
The Great Depression did not really affect Japan. Japan's economy shrank by 8% during 1929-31. Japanese Finance Minister Takahashi Korekiyo was the first to implement what has been identified as Keynesian economic policy: first, by a large fiscal stimulus involving deficit spending; and secondly, by devaluing the currency. Takahashi used the Bank of Japan to sterilize deficit spending and minimize the resulting inflationary pressures. Econometric studies have identified fiscal stimuli as highly effective.
Currency devaluation has a direct effect. Japanese textiles began to replace English textiles in export markets. Deficit spending prove the deepest and goes into ammunition purchases for the armed forces. In 1933, Japan was out of the depression. In 1934, Takahashi realized that the economy was in danger of overheating, and to avoid inflation, moved to reduce spending deficits leading to weapons and ammunition.
This resulted in a strong and rapid negative reaction from the nationalists, especially those in the army, culminating in his murder during the 26 February Incident. It has a terrible effect on all the civilian bureaucrats in the Japanese government. From 1934, the military dominance of the government continued to grow. Instead of reducing deficit spending, the government introduced price controls and reduced allotment schemes, but did not eliminate inflation, which remained a problem until the end of World War II.
Deficit spending has a transformative effect on Japan. Japanese industrial production doubled during the 1930s. Furthermore, in 1929 the list of largest companies in Japan was dominated by light industry, especially textile companies (many Japanese car manufacturers, such as Toyota, are rooted in the textile industry). In 1940, light industry has been replaced by heavy industry as the largest company in the Japanese economy.
Latin America
Due to the high level of US investment in the Latin American economy, they are severely damaged by the Depression. In the region, Chile, Bolivia, and Peru are severely affected.
Before the 1929 crisis, the relationship between the world economy and Latin American economy had been shaped through American and British investments in Latin American exports to the world. As a result, the Latin American export industry feels depressed quickly. World prices for commodities such as wheat, coffee and copper fell. Exports from all Latin America to the US fell from $ 1.2 billion in 1929 to $ 335 million in 1933, up to $ 660 million in 1940.
But on the other hand, depression causes local governments to develop new local industries and expand consumption and production. Following the example of the New Deal, local governments agree on legislation and create or improve welfare institutions that help millions of new industry workers to achieve better living standards.
Dutch
From about 1931 to 1937, the Netherlands suffered from a deep and very long depression. This depression is partly due to the continued effect of the Stock Market Crash of 1929 in the US, and in part by internal factors in the Netherlands. Government policies, especially the fall of the Gold Standard, play a role in prolonging depression. The Great Depression in the Netherlands led to political instability and unrest, and could be attributed to the emergence of the NSB Dutch nationalist-socialist party. The depression in the Netherlands was slightly reduced by the end of 1936, when the government finally dropped the Gold Standard, but the real economic stability did not return until after World War II.
New Zealand
New Zealand is particularly vulnerable to depression worldwide, since it is almost entirely dependent on agricultural exports to the UK for its economy. The fall in exports leads to a lack of income from farmers, which is a mainstay of the local economy. Jobs disappeared and wages dropped dramatically, leaving desperate and charitable people unable to cope. The employment assistance scheme is the only government support available to the unemployed, the rate at which the early 1930s was officially around 15%, but unofficially almost twice that level (official figures excluding M? Ori and women). In 1932, unrest occurred among the unemployed in the three major cities of the country (Auckland, Dunedin, and Wellington). Many were arrested or injured because of the official handling of the riots by police and "special police" volunteers.
Portugal
Already under the rule of a dictatorial junta, Ditadura Nacional, Portugal did not suffer the turbulent political effects of the Depression, although AntÃÆ'³nio de Oliveira Salazar, who had been appointed Finance Minister in 1928 greatly expanded his powers and in 1932 rose to the Prime Minister of Portugal to find Estado Novo, authoritarian corporate dictatorship. With a balanced budget in 1929, the effects of the depression loosened through crude steps toward a balance of budget and autarky, causing social discontent but stability and, ultimately, impressive economic growth.
Puerto Rico
In the years before the depression, negative developments in the island and world economy perpetuated an unsustainable subsistence cycle for many Puerto Rican workers. The 1920s brought a dramatic decline in two major exports of Puerto Rico, raw sugar and coffee, due to a devastating storm in 1928 and falling demand from global markets in the second half of the decade. The 1930 unemployment on the island is approximately 36% and in 1933 Puerto Rico's per-capita income fell 30% (by comparison, unemployment in the United States in 1930 was about 8% reaching a 25% altitude in 1933). To provide assistance and economic reforms, the US government and Puerto Rican politicians such as Carlos Chardon and Luis Munoz Marin created and arranged advance the Puerto Rico Emergency Relief Administration (PRERA) 1933 and later in 1935, the Puerto Rico Rural Reconstruction Administration (PRRA).
South Africa
As world trade slumps, demand for South African agricultural and minerals exports drops dramatically. The Carnegie Commission for the Poor has concluded in 1931 that nearly one-third of Afrikaners live as poor people. Social inconvenience caused by depression is a factor contributing to the 1933 split between "gesuiwerde" (refined) and "fusionist" factions within the National Party and the fusion of the next National Party with the South African Party.
USSR
The Soviet Union is the only communist country in the world with very little international trade. Its economy is not tied to the rest of the world and is only slightly affected by the Great Depression. The forced transformation of rural communities into industrial societies succeeded in building a heavy industry, at the expense of millions of lives in rural Russia and Ukraine.
At the time of the Depression, the Soviet economy grew steadily, driven by intensive investments in heavy industry. The real economic success of the Soviet Union at a time when the capitalist world was in crisis caused many Western intellectuals to see the Soviet system in a favorable way. Jennifer Burns writes:
When the Great Depression struck and unemployment soared, the intellectuals began unfavorably comparing their shaky capitalist economy with Russian Communism.... More than ten years after the Revolution, Communism has finally reached full interest, according to Walter Duranty reporter Walter Duranty, a Stalinist fan who firmly refutes reports of Ukrainian, manmade hunger. a disaster that will make millions die. "
Despite all this, the Great Depression caused mass immigration to the Soviet Union, mostly from Finland and Germany. Soviet Russia at first gladly helped these immigrants settle, for they believed they were the victims of capitalism who came to help the Soviets. However, when the Soviet Union entered the war in 1941, most of these Germans and Finns were arrested and sent to Siberia, while their Russian-born children were placed in an orphanage. Their fate is unknown.
Spanish
Spain has a relatively isolated economy, with high protection rates and not one of the major countries affected by the Depression. The banking system survives well, just like agriculture.
By far the most serious negative impact emerged after 1936 from the massive destruction of infrastructure and labor by the civil war, 1936-39. Many gifted workers are forced into permanent exile. By remaining neutral in the Second World War, and selling to both sides, the economy avoided further disasters.
Swedish
In the 1930s, Sweden had what US magazine called Life in 1938 as "the highest standard of living in the world". Sweden is also the first country in the world to recover fully from the Great Depression. Taking place in the midst of a short-lived government and Swedish democracy less than a decade, events like those around Ivar Kreuger (who eventually committed suicide) remain well known in Swedish history. The Social Democrats under Per Albin Hansson formed their first long-lived government in 1932 under strong interventionist and welfare policies, monopolizing the Prime Minister's post until 1976 with the exception of the only and short-term "summer cabinet" of Axel Pehrsson- Bramstorp in 1936. For forty years of hegemony, it was the most successful political party in the history of western liberal democracy.
Thai
In Thailand, which came to be known as the Siam Kingdom, the Great Depression contributed to the end of the absolute monarchy of King Rama VII in the 1932 Siamese revolution.
United Kingdom
The World Depression broke out at a time when Britain had not fully recovered from the impact of the First World War more than a decade earlier. This country
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